If revenue and expense totals do not reconcile at year-end, what is an appropriate first step?

• A. Reconcile only the bank accounts.
• B. Delete all invoices from the period.
• C. Ignore and proceed with closing.
• D. Verify totals and trace discrepancies to source documents; adjust as needed.

Answer: (D)

When revenue and expense totals don’t reconcile at year-end, start by tracing the discrepancy to its source. The appropriate first step is to verify the totals and follow the trail back to the underlying documents— invoices, receipts, payroll records, and journal entries—to see where the numbers diverge. This helps pinpoint issues like miskeyed amounts, duplicate entries, missing transactions, or timing differences between when a transaction is recorded and when it affects the period. Once you identify the source, correct the entries with appropriate adjusting journal entries or data corrections, then re-run the reports to confirm that the totals align before closing. This approach preserves an accurate audit trail and ensures reliable financial statements. Reconcile only bank accounts, delete invoices, or ignore the issue would not address the mismatch in revenue and expense totals.